Fight scams, block hackers, and prevent threats with Avast Mobile Security
- Security
- Privacy
- Performance
Blockchain technology is most associated with cryptocurrencies, but it has applications far beyond Bitcoin. It’s an innovative solution for storing and sharing data securely, with promising implications for data transparency. Learn how blockchain technology works, and get AI-powered security software to help protect against cyberthreats.
Blockchain technology is a type of decentralized public database used to record and share data or transactions securely and transparently. Information is compiled in “blocks” on a permanent ledger that all network participants can see, reducing the risk of tampering and fraud. The entire system is maintained and verified by a collection of network members, ensuring trust without a central controlling entity.
It’s an example of distributed ledger technology (DLT), where the authority to add new information is generated through consensus between decentralized nodes. All participants have access to the entire chain of data; however, because the ledger is immutable, no one can change an entry once it’s been recorded.
Blockchains are already being used in finance, healthcare, supply chain management, and gaming. Some common applications of this technology include:
Digital identity verification: Providing a decentralized method to verify identities and generate cryptographic “signatures,” enhancing privacy and security.
Cryptocurrency creation and management: Facilitating the creation and transfer of cryptocurrencies like Bitcoin and Ether.
Secure information sharing: Providing a way for important information to be shared securely with other network participants.
Blockchain has the capacity to enhance data security and ensure the long-term preservation of accurate information. Cryptography protocols safeguard data in a blockchain from being tampered with, while the network of decentralized nodes provides a “trustless” method of verifying the legitimacy of new data. If an attempt is made to alter the ledger, other nodes detect and prevent the change to ensure the blockchain is consistent across the entire network, reducing the risk of fraud.
There are three main components to a modern blockchain network:
A distributed ledger: A decentralized database for information contained within a blockchain that is shared and synchronized across multiple nodes in the network. These nodes have equal control and authority, reducing the risk of a single point of failure.
Smart contracts: A set of rules baked into the code of a blockchain that executes specific functions to help automate blockchain processes. Like the distributed ledger, smart contracts are immutable, meaning they can’t be altered.
Asymmetric encryption: Blockchains typically use asymmetric encryption, which involves both public and private keys. This ensures all data transmitted is protected from unauthorized access or alterations and can be viewed and verified as legitimate by authorized users within the blockchain network.
Blockchain data is encrypted using a public key, but a private key is required to decrypt the data.
Blockchain technology records data in “blocks” that are sequentially added to the existing “chain” of data, creating a chronological record of all additions or transactions. The data that constitutes each new block is verified by a network of nodes to ensure its legitimacy before being added to the blockchain. Once a block is added, it is secured and cannot be altered, ensuring data integrity.
Here’s a more detailed look at how blockchain technology works:
Recording the data: Every time a new transaction is made or data is added to the blockchain, it’s labeled with relevant information (like the amount of a cryptocurrency that was exchanged and which wallets were involved in the transaction) and stored in a block. The amount of data each block can contain depends on the blockchain. A Bitcoin block, for example, typically contains between 2,000 and 4,000 transactions.
Validating the data: All data that is added to a block is shared with nodes that verify its legitimacy. Consensus mechanisms, like Proof of Work (PoW) and Proof of Stake (PoS), use unique mechanisms to select validators, ensuring that multiple parties confirm the accuracy of an entry, rather than relying on a single central authority.
PoW involves miners (active network participants) solving complex puzzles, with the first to succeed adding the new block to the blockchain and earning a reward — usually digital tokens or cryptocurrency. In PoS, validators are chosen based on the amount of cryptocurrency they “stake” as collateral, alongside factors like the duration of their holdings.
Linking the blocks: Once they’re full with validated data, new blocks are added to the end of the existing blockchain without overwriting any older blocks. Each new block contains a reference to the previous block and a unique identifier that will be referenced in the subsequent block. This creates a complete, permanent, and chronological trail of data, making it possible to track all past transactions and ensuring that each new block is tamper-proof once added.
Blockchain uses cryptographic hash algorithms to secure data and validate transactions. When a new block is created, a unique value called a nonce is used to generate a hash (a unique identifier for the block). In Proof of Work (PoW), nodes compete to find the right nonce that will produce a valid hash, allowing the new block to be added to the chain.
Once found, this hash serves as a “fingerprint” for the block, linking it securely to previous blocks. This link ensures that any tampering with a block would alter its hash, triggering a cascading effect that changes all subsequent blocks’ hashes. This way, tampering is easily detected, as the entire chain would show signs of alteration.
Each block references the hash of the previous block and contains a new, unique hash that’s referenced in the subsequent block, creating an unbroken immutable chain.
Blockchain technology was invented in 2008 by a person (or group of people) using the name (or pseudonym) Satoshi Nakamoto. However, the timeline of blockchain is itself a chain of influence, where each development is linked to the foundational work of previous innovators in computer science and cryptography.
Blockchain’s history traces back to the late 1970s with the patenting of Merkle trees, a computer science structure that stores data by linking blocks using cryptography. In the late 1990s, Merkle trees were employed in a system that ensured document timestamps could not be altered. This marked the first iteration of blockchain, which has since evolved significantly.
In 2008, Satoshi Nakamoto released a whitepaper that proposed the first modern blockchain as the underlying technology for Bitcoin, a “purely peer-to-peer version of electronic cash” that uses 1 MB blocks to store and validate transaction data in a decentralized ledger. This started a wave of development of subsequent cryptocurrencies, including Ethereum which introduced smart contracts in 2015, expanding the functions of blockchain even further.
The cryptocurrency industry has since continued to grow, with the latest estimates putting the number of individual users at over 650 million. Blockchain technology has been adopted across a range of industries, with future expansions likely to bring new functions and innovative applications.
There are four main types of blockchain networks:
Public blockchain networks: These networks don’t require permissions, so anyone can join them. They are entirely peer-to-peer, which means all participants running a node are free to access and validate the blockchain using the consensus mechanism. Public blockchain networks are commonly used for cryptocurrency trading and mining.
Private blockchain networks: Often used by businesses, these networks are controlled by a single organization that also determines who can be a member and what rights they have. While they often have stronger security measures (like firewalls), they are only partially decentralized since they have access restrictions.
Hybrid blockchain networks: These networks combine elements from public and private networks. Businesses often use hybrid networks to restrict access to some data while making other data public. For example, a supply chain management system may allow public access to shipping statuses, but keep supplier contracts private.
Consortium blockchain networks: These networks are controlled by a group of organizations that share maintenance responsibilities and access rights. Consortium blockchain networks are often favored in industries where organizations share common goals and gain advantages from collaborative responsibilities.
Although still a relatively recent development, blockchain technology is in the process of being embraced by many industries. Here are some examples of how it can be used in business:
Finance institutions: Blockchains can be used to manage online payments and market trading. For example, HSBC’s Orion blockchain is being developed to digitalize capital markets, including bonds and gold, so clients can buy and sell assets more freely and securely.
Energy companies: Blockchains can enable peer-to-peer energy trading platforms. For instance, homeowners with solar panels could use a blockchain platform to sell surplus energy to neighbors. Smart contracts allow this process to be largely automated, with smart meters generating transactions that are recorded on the blockchain.
Media companies: Blockchains can record and protect copyright data, trustlessly and transparently guaranteeing that artists are credited for their work and helping to prevent ownership disputes. This system could also be used to facilitate the distribution of royalties.
Retail and supply chain companies: Blockchains can be set up to track the movement of goods between suppliers and buyers. They provide a shared, immutable ledger that allows all parties involved in the supply chain — including suppliers, manufacturers, distributors, retailers, and consumers — to access real-time information about goods in transit.
Healthcare: Blockchains can improve the security and immutability of medical records. The fundamental encryption protocols used in the technology ensures that medical records are protected against unauthorized access or alteration.
Gaming: Blockchains can be used in games, both to enhance security and introduce new experiences, like in-game economies. An in-game blockchain-facilitated marketplace could allow gamers to create and sell their own content, including items like skins, in-game assets, and game modifications, and the ledger would ensure proper attribution of credit.
The growth and popularization of blockchain technology has spawned several notable blockchains, some of which are on their way to becoming household names. Here are some of the most popular blockchains being used today:
Originally designed for cryptocurrency, Ethereum evolved into a programmable blockchain thanks to its adoption of smart contracts. By enabling self-executing agreements with predefined rules, the Ethereum blockchain has developed potential applications in industries like supply chain management, digital art, and real estate.
The flexibility of the Ethereum blockchain has also made it the go-to platform for decentralized applications (dApps). These are just like regular apps you might download on your smartphone, but they operate without central authority by leveraging a peer-to-peer network.
As a permissioned blockchain, Hyperledger is only accessible to authorized participants. This makes it ideal for use in industries that require privacy, security, and control — like finance, healthcare, and supply chain management.
Hyperledger’s suite of tools and frameworks enables customization for various use cases, including security-focused custom blockchain apps, programs for bridging private and public blockchain environments, and identity management systems to help verify identities across secure networks.
Primarily an enterprise-grade, permissioned blockchain for businesses, IBM Blockchain couples security with transparency for a host of industries where secure, verifiable multi-party data-sharing is essential, like finance, supply chain management, and healthcare.
For instance, in supply chain management, businesses can use the IBM Blockchain to track goods from production to delivery, allowing all participants to verify the authenticity and status of products, detect issues, and ensure compliance.
Known for speed and scalability, Solana is primarily used for dApps and cryptoprojects. It uses a unique consensus mechanism called Proof of History (PoH), which creates a timeline of transactions with timestamps that verify when each transaction happened. This vastly speeds up the validation process.
Solana supports many decentralized finance (DeFi) applications, providing fast and low-cost transaction capabilities that power activities like lending and trading marketplaces. It’s also often used for NFT projects, high-performance gaming platforms, and Web3 applications.
Blockchain is a decentralized system that records, stores, and verifies data across a network of computers, while cryptocurrency is a form of digital money built on blockchain technology. In other words, blockchain is the underlying technology, while cryptocurrency is one application of that technology.
The entire cryptocurrency ecosystem relies on blockchain technology, with diverse processes and concepts — like the mining process and the generation of non-fungible tokens (NFTs) — leveraging specific blockchain features.
Cryptocurrency blockchains that utilize PoW rely on nodes to validate transactions in blocks, and each block that is “solved” launches new tokens into circulation. This is known as mining. Miners compete to validate transactions by solving cryptographic puzzles and finding a nonce that generates a valid hash, which allows them to create new blocks on the blockchain. The first node to solve the puzzle and verify the block receives an economic incentive, or reward.
Any individual with a computer and internet access can set up a node by running blockchain software on a server. However, given the intense competition to solve the cryptographic puzzle and earn the reward, most mining is done by organized networks of processing power owned by private crypto mining companies, like Hive Technologies Ltd and Argo.
Some hackers try to exploit computers in cryptojacking schemes, using other people’s processing power in an attempt to earn mining rewards.
Non-fungible tokens (NFTs) are unique digital assets that represent ownership of a specific item or piece of content, such as art, music, collectibles, or even concert tickets. NFTs are created and stored on blockchains like Ethereum or Solana, which use smart contracts to securely manage ownership, transfers, and functionality of these tokens.
Because they are on a blockchain, NFTs contain a record of ownership that users can track, making it easy to verify the authenticity and history of any digital asset. For instance, an NFT concert ticket can be uniquely identified, transferred, or even programmed to grant access only at a specific time and location, all enforced by the underlying blockchain technology.
Marketplaces like OpenSea allow users to trade NFTs directly. Creators can also set up smart contracts to receive automatic royalties on resales. The transparency and traceability of NFTs allow for decentralized asset trading, with the blockchain verifying authenticity and ownership.
Ready to dive into the world of NFTs? Use our guide to learn how to create NFT assets.
For a host of industries, blockchain technology offers diverse benefits that have the potential to drive efficiency, transparency, and innovation. Here are some of the key advantages of blockchain technology:
Blockchains provide a transparent and immutable record of stored information, allowing all parties involved to verify the legitimacy of data without relying on a central authority. This fosters trust between participants, even if they don't know each other, since the blockchain ensures transparency and reduces the potential for fraud or errors.
The decentralized nature of blockchain technology, coupled with its use of advanced cryptographic techniques, ensures that blockchain data is resistant to tampering or unauthorized access. The validity of new records has to be agreed upon by all parties, and historical entries can’t be altered, meaning blockchain networks are largely immune to hacking and fraud.
The distributed ledger system used in blockchains removes the need for intermediaries, which speeds up transactions. Additionally, smart contracts can be used to automate processes by executing predefined actions based on triggers, opening up a range of applications that can further streamline operations and overall efficiency.
While blockchain technology is in an exciting stage of development and offers many benefits, it’s not without its drawbacks. These are some of the most notable disadvantages of blockchains:
Certain types of blockchains require large amounts of computational power. The PoW consensus mechanism, in particular, is notorious for using vast quantities of energy to validate transactions. Consequently, some environmentalists are concerned about the significant energy consumption that further popularization of blockchain systems could cause.
As of 2025, it’s estimated that Bitcoin uses 0.65% of the total electricity generated per year globally. According to the Cambridge Bitcoin Electricity Consumption Index, that’s more electricity than the entire country of Poland uses.
Adding a new block to a blockchain can be a slow process, particularly on blockchains like Bitcoin that use the PoW mechanism. A new Bitcoin block is only mined every 10 minutes on average; combined with Bitcoin’s limited block size, this means that the network can only process around seven transactions per second (TPS). In contrast, payment networks like Visa can handle significantly higher transaction volumes, capable of processing up to 24,000 TPS.
Dark web marketplaces, like the now defunct Silk Road, are often used as hubs for illicit transactions, including the sale of drugs, weapons, and stolen data. Cryptocurrency is a favored payment system for users on these platforms because of the privacy and anonymity offered by their blockchains compared to traditional payment channels which require user verification.
Blockchain technology itself is generally considered to be safe from fraud and tampering thanks to the underlying mechanisms that mean the data stored in blocks can’t be altered once it’s validated. However, not all blockchains are completely impenetrable.
For example, in 2022, hackers exploited a vulnerability in the Ronin Network, a blockchain platform used for the game Axie Infinity, stealing over $600 million in cryptocurrency. It’s worth noting that these vulnerabilities, where they exist, aren’t necessarily permanent, and can be secured with a blockchain patch.
Although blockchain technology is relatively secure, that doesn’t mean users are always safe when using it. These are just some of the risks associated with blockchains:
Phishing or spear phishing attacks involve scammers sending fake emails that appear legitimate but often contain links to counterfeit websites, tricking users into entering their credentials. Blockchain-related phishing schemes might aim to get victims to reveal their private wallet keys, allowing the phisher to access and drain any stored cryptocurrency.
In a router attack, hackers can intercept real-time blockchain data as it’s transmitted between blockchain nodes and internet service providers. By exploiting vulnerabilities in the network, attackers may be able to alter or delay transaction data, potentially leading to double-spending or other fraudulent activities.
Learn how to turn on Wi-Fi encryption in your router and how to generally prevent router attacks to keep data in transmission secure.
In Eclipse and Sybil attacks, hackers flood a blockchain network with numerous fake identities or nodes, overwhelming the system and potentially causing it to crash or behave maliciously.
Sybil attack: In a Sybil attack, hackers create a large number of fake identities or nodes to take control of the network. This manipulation can disrupt consensus processes, allowing attackers to influence decision-making or prevent legitimate transactions.
Eclipse attack: In an Eclipse attack, hackers isolate a specific node or group of nodes by flooding the network with fake nodes, preventing the targeted node from accessing real network data. This can allow attackers to distort the information seen by the targeted node, potentially leading to fraud or incorrect transaction processing.
Blockchain technology might be noted for its data security protocols, but that doesn’t mean you’re entirely protected from risk when you interact with blockchain applications. Avast Free Antivirus offers layers of protection against cyberthreats, including malware and potentially harmful websites. Help safeguard your data and devices as you dive into cryptocurrency or explore the latest dApps.
Yes, blockchain transactions are traceable. Each transaction on a blockchain is recorded on a public ledger, creating a transparent and immutable history of all transactions. This means that anyone can view transaction details. While the public nature of the ledger makes transactions traceable, the level of anonymity depends on the specific blockchain and how it’s designed.
A database enables easy updates, modifications, and deletion of data. A blockchain stores data in “blocks” linked together in a chain. Once data is recorded, it can’t be altered or deleted, ensuring that it’s permanent and secure. Also, a database is often centralized, with one entity in control of the data and its access. A blockchain is decentralized, with no single entity in control.
In terms of data storage, blockchain is a decentralized system that records data across a distributed network of computers where each participant has access to the same data. Cloud technologies involve centralized systems where data is stored on remote servers owned by a cloud provider. They rely on a central authority to manage and control the data.
Traditional banks are centralized institutions that act as intermediaries in financial transactions. Blockchains are decentralized, eliminating the need for intermediaries. They allow for peer-to-peer transactions, faster transfers, and, theoretically, lower fees, while traditional banks are bound by third-party verification, regulations, and bureaucracy.
